Dec 18, 2008

A record plunge in consumer prices in November puts pressure on the Federal Reserve to act decisively to guard against a debilitating bout of deflation.

The Federal Reserve Tuesday cut its target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

It also said it believes that inflationary pressures have diminished. "In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters," the Fed said in a statement accompanying its decision on interest rates.

In other economic news, the Commerce Department reported that construction of new homes fell in November by 18.9 percent, the biggest drop in a quarter-century. The steep decline pushed construction down to a seasonally adjusted annual rate of 625,000 homes, the slowest pace on records dating to 1959.